Term Sheet -- Thursday, August 24

A BUGABOO

Earlier this week, I mentioned that Jim Clark is back with a new building security startup based in Del Rey, Fla., called CommandScape. One key element to the startup’s product is that its building management “command center” will be mobile-first, using a person’s phone to validate identity instead of a password, and using “the same highly secure certificate process invented by NetScape.”

Clark was inspired to start CommandScape after he bought a 7-story townhouse in New York City and embarked on a gut renovation several years ago. The contractor recommended he use a commercial-grade security and monitoring system, which cost $300,000 to install and $600 a month to maintain. “I said gee, I’d like to be that monitoring company,” he tells Fortune.

CommandScape, led by former chief corporate development officer at ADT Don Boerema, has raised $10 million in funding from Clark and his longtime business partner Tom Jermoluk. The firm will raise another round in the next few months from “people that I know who I want on the board,” Clark says. The 25-person company, which started officially nine months ago, has installations live in two of Clark’s homes and one commercial installation.

“We’re trying to firm up a market that is today very disjointed – building security, building management, lighting systems — and we’re trying to do it with a good business model,” he says. CommandScape will remain at the high end and commercial side of the market, avoiding competition with consumer-facing smart home products from Google, Amazon, etc.

Beyond his new venture, Clark and I discussed founder-friendly terms, employee liquidity, Uber, Benchmark, and IPOs.

“The Valley investment climate has changed so much since I was there I couldn’t go back there,” the founder of Silicon Graphics, Netscape, WebMD, MyCFO and Shutterfly tells Fortune. “I’m not interested in those kinds of competitive bidding wars, because you create a couple hundred unicorns and it’s false.” He has invested in one unicorn – he won’t say which, as well as Denver-based coupon company Ibotta and New York media startup Mic.

Clark notes he’s generally opposed to the practice of three-class stock structures that give founders extra power (“There are reasons to do it but in general I think the traditional way”), and adds this to his answer:

Jim Clark: I also think companies stay private far too long. Microsoft went public after four years, the same year we did, at Silicon Graphics. I think their market cap was under $100 million. Okay, maybe it’s risky for the public, but at least you give the public a chance to ride that out. With Uber, no one’s ever going to make money out of Uber except the guys that are in it now. [Laughs.] They’re probably going encounter that once you decide to take it public — basically flip the risk and let the suckers in the public market have a shot at it – that you’ve already sapped it of all its value.

Fortune: Now insiders are looking to get out, too.

That’s the big problem in all of these companies. You’ve got to give employees liquidity. If you don’t, you’re holding them hostage. You basically have – you have slave labor. They’re tied to you, they can’t really sell the stock, and if they do they’re going to sell it at a discount, and it’s never a fair valuation because it’s all arbitrary and it’s all done in private. You’ve got to make a liquid public security to be fair to your employees, otherwise you’re just screwing them.

That’s one of the big problems in the Valley now. There are a bunch of unicorns out there, and arguably, they’ve gotten overinflated. You get to a point where the market isn’t going to pay what the private investors paid, so people are going to have to take a down round to go public. In general, that is a huge problem and I’m very much not in favor of that. At CommandScape, assuming we’re successful, we will certainly go public way before we have valuations like that. We will not be that category of company.

This a bugaboo of mine. I’m so frustrated with that stupidity. It’s not fair to the people. [My philosophy] is that everyone gets stock. [Boerema] was questioning, “Really, everyone? It’s not required in Florida.” But you know what? Then they own it. And when they own it, they’re more of a part of it. You can make mistakes and people walk away with stock they shouldn’t have, etc. etc., but it is, to me, a fundamental part of doing a company.

You can have that philosophy and still decide to keep it private for a long time. Some of that is encouraged by Sarbanes-Oxley. Shutterfly was a company I founded and we finally went public, and it was painful. It took three years of preparation to get public.

And it seems like it’s still hard for them to get attention and excitement because they’re not a $20 billion company.

Yeah, well, there is a market. There are institutional investors who want to buy because they say, “Hey, this could be a Microsoft.” But they’re not going to be saying, “This could be a Microsoft” about Uber, unless they already got in. And by the way, once [Uber] reached that point, why are they going public if they’ve been able to raise all the money themselves? The only reason is to give employees liquidity. Which means it’s mostly sellers. So, who are the buyers? The buyers are the suckers.

There needs to be a story about this whole screw job that’s happening to employees at unicorn companies, because they don’t have liquidity.

Some people would say, boo hoo, they’re still getting very high, competitive salaries and worth a lot on paper.

Not true. [Certain unicorns] have pretty mediocre salaries. And the stock is overinflated and it’s illiquid. And you gotta deal with the jerks who are doing what they’re doing.

So to your point about giving [founders] too much power – it’s the money – whoever paid up. There are some big venture funds who are going to lose a lot of money. Benchmark is going to do well on Uber almost no matter what. But if I were them, I’d try to get out of it right now. Get out and get out of the headache.

***

STUNTS: Valerie Plame, a former CIA agent, is leading a crowdfunding campaign to raise $1 billion to buy shares of Twitter and use that leverage to pressure the company to shut down President Trump’s Twitter account.

At Twitter’s current valuation, $1 billion would give Plame and her crowd an 8% stake in the company, which is much higher than most activist investors have to spend to win board seats, get CEOs replaced and kick off M&A processes. My colleague Jeff John Roberts is skeptical the campaign would be successful, not just because $1 billion would be the largest crowdfunding campaign of all time, but because of its desired change: Inducing the company to engage in a political fight with the President.

As Roberts notes, most activist investors are pushing companies to improve their financial performance. That makes it easier for other big institutional investors to back them up. Twitter shareholders already struck out in their attempt to turn the company into a co-op owned by users last year. Read more here.

If it is successful, I’m curious about the fee situation. Go Fund Me charges a 5% fee for all of its campaigns. It charges an additional 2.9% for payment processing on personal fundraises. For charity campaigns, which Plame’s is marked as, PayPal’s Giving Fund covers the payment processing fee. Go Fund Me stands to earn $50 million on the campaign. But is PayPal cool with eating $29 million in fees over a political campaign?

LASTLY: While I’m talking about Go Fund Me, here’s a free deal idea: We’ve all seen the stories showing how America’s healthcare crisis has been a goldmine for crowdfunding platforms. Uninsured people are turning to crowdfunding to cover their medical costs. There’s a direct link to legislation: Crowdfunding for medical costs is more likely to happen in states that did not expand Medicaid under the Affordable Care Act. “Crowdfunding is being treated a little like crowd-insurance now,” Bloomberg quotes an executive saying.

It’s depressing. But here’s a slightly cynical idea I’ve heard discussed in crowdfunding circles: Why doesn’t a health insurer acquire Go Fund Me? That way, when insurers deny coverage or their customers can’t afford their bills, they can offer sick or injured people free crowdfunding services as a consolation. They might earn some goodwill in the process.

***Yes, tomorrow’s my last day writing Term Sheet. More on what’s to come – both for me and for Term Sheet — then.

VENTURE DEALS

• VIPKID, a China-based online English education company, raised $200 million in Series D funding. Sequoia Capital led the round and was joined by investors including Tencent, Yunfeng Capital, Matrix Partners China and Zhen Fund.

• Blend, a San Francisco-based consumer lending technology company, raised $100 million in Series D funding. Greylock Partners led the round, and was joined by investors including Emergence Capital, 8VC, Lightspeed Venture Partners, and NYCA Partners.

• Descartes Labs, a Los Alamos, N.M.-based deep-learning image analysis company, raised $30 million in Series B funding. March Capital led the round, and was joined by investors including Crosslink, Cultivian, and Cargill.

• Lumity, a San Mateo, Calif.-based technology-driven benefits solution for growing companies, raised $19 million in Series B funding. DFJ led the round, and was joined by investors including Social+Capital Partnership, and True Ventures.

• Bridg, a Los Angeles, Calif.-based marketing software company, raised $11 million in Series B funding. The Morpheus Ventures led the round, and was joined by investors including NextEquity Partners, Visa, and March Capital.

• WorkSpan, a Redwood City, Calif.-based marketing network provider, raised $9 million in Series A funding. Mayfield led the round.

• Truss, a Deerfield, Ill.-based commercial real estate tech platform, raised $7.7 million in Series A funding. Navitas Capital led the round, and was joined by investors including Hyde Park Angels.

• Amenity Analytics, a New York-based text analytics platform, raised $7.6 million in Series A funding. Investors include State of Mind Ventures.

• GNS Healthcare, a Cambridge, Mass.-based provider of big data analytics products and services for the healthcare sector, raised $6 million in funding. Amgen Ventures led the round, and was joined by investors including Alexandria Real Estate Equities.

• Tickr, a San Francisco-based data applications platform for digital business, raised $3 million in funding from Angels 3.0.

• Eko Communications, a U.S.-Thailand company that operates a messaging app targeted at businesses, raised $2 million in funding, according to TechCrunch. Itochu led the round, and was joined by investors including Gobi Ventures. Read more.

IPOs

• Social Capital Hedosophia Holdings, a Palo Alto, Calif.-based SPAC, filed for an IPO raising up to $500 million. The company has priced 50 million shares at $10 each, and plans to use the proceeds of the offering to acquire a tech company valued at at least $1 billion. The company is backed by Social Capital’sChamath Palihapitiya, and Osborne & Partners’ Ian Osborne. Credit Suisse is underwriter in the deal.

• Celcuity, an early stage biotech based out of Minneapolis, Minn., filed for an IPO of up to $15 million. In 2016, the company posted loss of $3.3 million, and has yet to post a profit. Globe Resources Group backs the company, as does David Dalvey of Brightstone Venture Capital. Craig-Hallum Capital Group has been named underwriter in the deal. Terms of the deal have not yet been disclosed.

• Accelerated Pharma, a Westport, Conn.-based biotech focused on chemotherapy, withdrew its IPO plans Wednesday. The pharmaceutical company planned to raise $8 million in an offering of 1.5 million shares between $4 to $6 a piece. The company planned to list on the Nasdaq as “ACCP.” Rodman & Renshaw and Joseph Gunnar & Co. were joint bookrunners in the deal. The company posted loss of $3.9 million in 2016, and has yet to post a revenue.

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EXITS

• Baidu sold its Xiaodu food delivery subsidiary to Rajax, which operates Ele.me, China’s leading food delivery business that is valued at around $6 billion. The deal is reportedly valued at around $800 million, according to TechCrunch. Read more.